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The definition of gross income in the income tax law is inclusive
on its face, and the concept of inclusiveness is long
established. See Commissioner v. Glenshaw Glass Co., 348 U.S.
426, 429-430 (1955). As to distributions of capital gain
dividends (defined in section 852(b)(3)(C)), by regulated
investment companies or mutual funds, section 852(b)(3)(B)
states: “A capital gain dividend shall be treated by the
shareholders as a gain from the sale or exchange of a capital
asset held for more than 1 year.” Section 1222(3) states that
the term “long-term capital gain” means “gain from the sale or
exchange of a capital asset held for more than 1 year”. Net
long-term capital gains are subject to tax at the preferential
rates set forth in section 1(h).
Consistent with this statutory mandate, Form 1040 (1997)
U.S. Individual Income Tax Return, Schedule B, Interest and
Dividend Income, and Schedule D, Capital Gains and Losses,
together ensure that capital gain distributions are taxed. In
addition to instructing the taxpayer to “Include gross dividends
and/or other distributions on stock here”, line 5 of Schedule B
also states: “Any capital gain distributions and nontaxable
distributions will be deducted on lines 7 and 8”. The tax form
clearly provides that all capital gain distributions (as well as
nontaxable distributions) must be listed on line 5, and there is
no reasonable argument that distributions on shares of mutual
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Last modified: May 25, 2011